Effects of Bank Mergers in the UK: Analysis

Introduction

This paper takes a look at effects of Bank Mergers in the UK. It also shows how banks are affected by mergers and their effects on retail interest rates and customers.

It also takes a look at how bank mergers help bring about improvement which is passed on to the customers. The main aim of the paper is to analyze the effects of Bank Mergers. It also takes a look at the environmental factors which lead to the mergers taking place.

Aims and Objectives

The aim of this paper is to analyse who the beneficiaries of a bank merger are and the cost analysis of the merger. It analyses the costs which are involved with the merger and its effects on the customer. The paper also deduces whether the retail interest rates are not influenced by the effects of mergers. Furthermore it also looks at how different banking products can be affected by mergers. The objectives of this work are:

• To review the extant conceptual frameworks and models associated with Bank Mergers
• To identify how mergers affect the relationship between banks and their customers
• To analyse the cost analysis associated with the mergers of Banks
• To understand the external factors which lead to mergers taking place between banks

Literature Review

Bank Mergers are usually subjected to anti competition or antitrust laws if they are found to be limiting the field for competition. The key to a bank merger is that it should bring about benefits to the sector instead of restricting it. There should be synergy between banks instead of tightening the noose and making it tough for everyone. If there are no savings being passed on to the customers then there is no use of a bank merger. There have been scenarios where bank mergers were not permitted by the Competition Commission as the customers would not benefit from the merger. (Competition Commission 2001). The regulatory bodies have to ensure that all gains from the merger do not benefit the merged bank but are passed on to the customers. There is a lot of scrutiny when it comes to bank mergers and identifies the relationship between efficiency and price changes after a merger has taken place. According to Farrell and Shapiro (1990) prices and retail interest rates can fall only if there were lower marginal costs before the merger of the two banks. Mergers are known to have failed if they don’t bring about any savings or benefit to the customers. Mergers are not beneficial to the customer if the interest rates for customers are higher. The efficiency of merging banks influences the competition in the market. Bank mergers lead to bad conditions for the consumer if the merger does not promise efficiency. If a bank records efficiency gains after a merger then it brings about price improvements. Bank mergers tend to affect certain banking products in different ways.

Research Setting

The research is based upon the UK retail banking market. It examines the large and small banks and takes a deep look at the mergers which took place over the last few years and the mergers which failed to take place. Both building societies and UK retail banks are analyzed as they all offer different retail banking services. The research only includes banks that are in the UK retail banking market. The research also takes a look at the mergers which occurred between the small building societies as it is easier to gather data for that. The research has limited adding the mergers between bigger banks.

RESEARCH QUESTIONS

In order to make sure that the research is conducted properly we have to set a number of key questions so that the research will be able to answer them.

• To identify how mergers affect the relationship between banks and their customers
• To analyse the cost analysis associated with the mergers of Banks
• To analyse the external forces which lead to mergers between banks

RESEARCH METHODOLOGY

This particular assignment follows the traditional research methodology which allows the research to be conducted in various layers one after the other. The first one is the philosophy of Positivism where a researcher adopts the stance of a scientist who has to evaluate everything in a philosophical manner and understands the evolutionary process of how things are done. The interpretivism philosophy is where things are created due to the interaction between individuals.

The research looks at all the issues associated with mergers within the banking retail market. the data is gathered through proper research. There is the need to gather quantitative as well as qualitative data in order to prove the theories and conclusions.

RESEARCH APPROACH

The research is conducted by examining all the data in a systematic format. Most of the data is present in documentary format along with information available in various journals and papers. All the data needs to be interpreted in a proper organized manner and needs to be separated in order to get the gist of the research.

RESEARCH STRATEGY

This research paper takes an in-depth look at the effect of mergers between banks and how it affects the banking products in the UK. It also examines how it can affect the interest rates in the banking sector. The paper also takes a look at the external factors which push the market in favour of mergers. It examines factors such as bear market which leads to share prices falling, dire economic situation which lead to problems, bad balance sheets which lead to a drain of capital, mergers which take place mainly due to help two troubled banks i.e. Lloyds TSB and Halifax, losses suffered by the investment arm of banks, collapse of big corporations which lead to a domino effect, hedge funds making losses and lastly due to the insurance divisions which do not do well. It also examines how the retail interest rate is affected if a merger does not go well.

ETHICAL CONSIDERATIONS

It is essential for me to follow a proper code of conduct before going ahead with my research process. There is a fine line between ethical and unethical research. The information gathered will be done with the consent of everyone and no laws shall be broken to obtain the data. I shall ask all the people interviewed to sign waiver forms and to give me indemnity from any potential problems. A point to bear in mind is not to intimidate any of the subjects or to harass them in handing over vital information.

DATA COLLECTION

The plan is to contact all of the various building societies and a few of the big banks which merged in the not so recent past. I need to visit them all and collect information on the types of products they have. It would help to visit someone from the corporate headquarters as retail banks would not have the competent staff which would allow me to gather the information I need. Higher ranked officials at the various banks can only give me information about how their bank products were affected and how mergers in the retail banking sector leads to different interest rates.

Data will be collated through both qualitative and quantitative questionnaires, series of interviews, documentary analysis. I would also need to do a walkthrough with people from the various banks and building societies so that I can get the right idea. The questionnaires will be quite straight forward and will only comprise of a few limited questions which are closed ended. The interview process will not take long and will only be a one on one session which is also close ended. The only problem is to schedule everything within a particular timeline. There are a lot of people to interview and that is one reason why it is crucial for me to limit the time I spend on all my interviews so that I can get everything done really fast. It is also interesting to know that both questionnaires and interviews will generate different answers so special attention will have to be paid to both. Document samples are a must to be collected from the various banks in the area. The data collected will be from both primary and secondary resources.

Primary Data

I will gather all the primary data by simply gathering all the information via personal visits to the various banks and building societies which have been created as a result of a merger between two banks. It will be useful to find out how the banks were able to change their policies and how the merger affected their interest rates. The cost analysis will also be done after taking a look at the before and after status of the merged entities.

Bank personnel will be giving me their valuable time so it would help me save time by only sticking to close ended interviews for the session. This will make it easier for both parties. The banks should hopefully provide me with documents I need to support my work and allow me to create my quantitative data.

Secondary data

Secondary data will be gathered with the help of external sources. It is essential to check out proper databases which deal with the type of historical data required for my analysis of the retail banking sector. The best idea for me is to base my work conducted by a researcher on the same topic. It also helps to do a bit of reading up on the topic so that I would know what this research entails. It is obvious that I won’t be able to get all my data from people so I would need to gather information from journals, databases, white papers, etc. some of the data can be cited from text found in the documents supplied by the banks.

DATA ANALYSIS

The data needs to be examined one by one so that mistakes are not made. There are plenty of key points which can be examined only by going through it with a fine tooth comb. Data can be analysed in the form of charts, tables etc.

CONCLUSION AND RECOMMENDATION

Finally the research can be summarised as the sort who will allow me to understand why mergers take place between banks and how the retail banking sector is affected. I will be able to make my conclusions after I have gone over everything at the end of the study.

TIME FRAME OF RESEARCH

The research program needs to be conducted within a specific timeline. Due to limitation of time and the amount of legwork to be conducted I need to finish my research within 22 weeks. This gives me plenty of time for discovery and to jot all my information down on paper. If I do not finish my research on time it will delay everything and create various problems.